I offered my first set of five good ideas on September 13, and so far so good. As you all can see every day, RealMoney is tracking all our contributors' top five ideas. I recently made several trades in my large- cap GARP partnership, and decided I'd update my best ideas here as well.
A key element to successful investing is to ensure that your portfolio always reflects your best ideas right now. Letting your great ideas degrade into just average ideas is the single biggest mistake made by portfolio managers.
I am swapping out four names in my top-five list, despite the fact that I still like them and still own them in my 35-stock partnership portfolio. I am replacing them here with four new names that I purchased this week. Being new, this means they are the freshest, most exciting names I own. They pass the "would you buy it now" test because I did just buy them now!
Here is my new top five list:
Sandisk (SNDK) remains atop the list. Despite excellent stock performance, I see more gains ahead. The valuation is still cheap and the earnings momentum is strong. And, we are entering into the best seasonal for tech in general -- and for Sandisk due to their exposure to consumer electronics.
The new names cover diverse sectors -- as you should expect. Owning several names in one hot sector offers no diversification value, and when the sector turns all will get crushed simultaneously.
CNA Financial (CNA) is the well-known commercial property and casualty insurer. CNA is demonstrating great results with the combined ratio down over 500 bps in the most recent quarter, and a 340 basis points improvement in accident-year-loss ratio. As it moves underwriting margins closer to the industry -- it had been underperforming -- the potential for upside to earnings is real.
Cimarex Energy (XEC) is a Denver-based exploration and production company levered mostly to natural gas, with some oil reserves. It operates in the western US. XEC is a Permian play, with the region accounting for 50% of volume, and it is improving its completion methods, driving upside vs. guidance. It is doing more frac stages per well and drilling longer laterals. As the company refines its drilling practices, they can continue exceed consensus.
Motorola Solutions (MSI) is not the handset maker now owned by Google; it is the networking infrastructure "stub" left from that deal. It sells a variety of radio- based systems to governments and large enterprises. MSI blew away the numbers when it reported third quarter results, beating consensus by 30%. Analysts are still skeptical about the growth prospects at MSI, but they are demonstrating strong cost cutting and are buying back shares in size. Even with modest topline growth, that sort of activity can drive attractive bottom line results. Warren Buffett is betting on a similar thesis with IBM!
Mead Johnson Nutrition (MJN) is the only expensive name in my group, trading at 24x the forward 4 estimate. MJN is a great China play, with 25% of operating profit coming from the country. The fear of local baby formula in China is well known, and this dynamic should continue to drive growth for the foreseeable future. MJN has top market share in China and is expanding distribution rapidly.
